After Reaching This Year’s Spring Shoulder Lows, EIA is Forecasting Higher Prices For Natural Gas
Natural gas market update 10 May 2023 https://youtu.be/SbBkSUgW28s The Apr 17th Energy Update pointed out the price of Natural Gas
Natural gas market update 10 May 2023 https://youtu.be/SbBkSUgW28s The Apr 17th Energy Update pointed out the price of Natural Gas
The Apr 17th Energy Update pointed out the price of Natural Gas often follows a seasonal pattern in which it tends to be lower during the Spring and Fall, referred to as Shoulder Periods prior to higher prices in the Summer and Winter. And this pattern is especially accurate when the Spring or Fall lows occur near historically low prices. For example, since 2000, Natural Gas has declined to near today’s unsustainably low prices 4 times; and in each case the final lows were attained either in the Spring or Fall:
Natural Gas prices this low were unsustainable because they were below the cost of production, and companies were no longer profitable near those low prices; therefore, the. weaker companies did not survive, and those who did survive were highly motivated to decrease production so they could recoup lost revenue by raising prices.
The Apr 17th Energy Update also stated that it was highly unlikely we will remain near today’s low prices very long, and this year’s low will as in 2012, 2016 and 2020 occur during the Spring Shoulder period.
This statement was supported by the summary on page 28 of yesterday’s monthly Energy Information Administration (EIA) Short Term Energy Outlook (STEO), which you can review in the link below:
In their report the EIA forecasts Natural Gas prices will average $3.49 per MMBtu in the fourth quarter of 2023, which would be an 54% increase above yesterday’s close of $2.27 per MMBtu, and they forecast the average price for 2024 will be $3.72 per MMBtu, a 64% increase above yesterday’s close.
Past performance does not guarantee future results, but when you observe a pattern is consistently repeated over time, and are faced with the same pattern again, hopefully you learn from the past and not make the same mistake you did before.
Clearly the EIA believes as we do at Energy Professionals that the average price of Natural Gas and Electricity will be higher in the fourth quarter of 2023 and throughout 2024. Hopefully the empirical evidence presented in this report helps you understand history is repeating itself and if you have an agreement expiring within the next 18 months you don’t delay hoping for lower prices. The upside risk is too great to justify waiting in the hope for slightly lower prices.
Not every client’s risk tolerance and hedging strategy are the same, but the above report will help you put into perspective the risk/reward opportunities. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
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